The Dark Story Behind Pornhub’s $1.5B Business Empire
Porn, Power, and DuckDuckGo’s Rise - February 7, 2024 (about 1 year ago) • 43:31
Transcript:
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Sam Parr | Alright, Sam, I want to play a game. I want to start this with a game where I'm going to read you the most trafficked websites in the United States.
And as a simple test, you're a business guy; you studied the business world. I want you to tell me if you know who the owner or CEO of these businesses is.
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Sam Parr | Alright, I like this game.
**Number 1:** Google.com. **Sergey Brin** and **Larry Page**.
**Next one:** YouTube. **Chad Hurley**, and apparently, yep, **Jared Cohen** and one other guy, **Steve Chen**.
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Sam Parr | exactly correct | |
Sam Parr | reddit huffman and ohanian correct | |
Sam Parr | Amazon... Bezos. Okay, number 5. Now we're good; we're getting to the good stuff.
Okay, so first, I think you'll get this one easy: Facebook.
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Sam Parr | zuckerberg | |
Sam Parr | okay number 6 pornhub | |
Sam Parr | bastian something a german guy | |
Sam Parr | Incorrect, sir. This is the number 6 most trafficked website in the United States, with 3,000,000,000 visits in a month. | |
Sam Parr | is it called mindgeek or mindfreak or something | |
Sam Parr | MindGeek is the name of a company that owned it. However, the founding story is pretty crazy. I don't know if you're a sci-fi guy or a fantasy guy, but in many fantasy book series, there's this concept.
For example, in *The Lord of the Rings*, there's the ring, or in *Harry Potter*, there's the Elder Wand. It's the idea that there are these assets that are so powerful that people want to own them. However, whenever you own it, your ownership is going to be very short-lived. It's almost as if the item is too powerful; it sort of corrupts you and puts a target on your back, causing other people to start coming for you.
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Sam Parr | it's a real sticky situation one might say | |
Sam Parr | This is like *Game of Thrones*, right? Everybody wants to sit on the Iron Throne, but when you're on the Iron Throne, you're not going to last very long.
So, this is a *Game of Thrones*-style story for tech that I went down a rabbit hole on, and I want to share it with you because I didn't know this story.
Let me tell you how it went down. Okay, so we rewind the clock. We go back to 2005. Up until then, you know, the internet had been out for roughly ten years, and of course, porn was popular right away. But the way that all porn sites worked was like Yahoo; it was a directory of links.
You would go to whatever, I don't know, *jugworld.com*, and it would just show you a hundred links to places where you could go watch videos.
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Sam Parr | not the videos but to the other websites | |
Sam Parr | Links to other websites or links to other photos. They’re mostly photos. At the time, it wasn’t even that much video.
In 2005, a big milestone happens: YouTube launches. YouTube launches with a pretty simple proposition: **we'll make it really easy to host a video online.** You don’t have to host it on your own servers; we’ll host it on our servers.
Instead of just sending somebody that file, you send them just a link, and they can watch it here. We’ll just have all the videos here in one place.
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Sam Parr | which is mind blowing | |
Sam Parr | Sounds so obvious now, but at the time, it was different. If you haven't read it, go read the Sequoia memo about his investment roll-off, both in his investment in YouTube. If you want to see how uncertain and how small and non-obvious this was at the beginning, YouTube launches and starts to get popular.
Now, there are copycats that come out, like the porn version of this, RedTube. Just off of YouTube, RedTube, YouPlore, whatever. A bunch of these come out, and they're all flooded with pirated content. They're just like LimeWire back in the day; they just take stuff that you're supposed to pay for and upload it for free. They would have banner ads to make money.
Even though these were kind of sketchy websites, they were 10 times better in every way. It was more private; you didn't have to go anywhere. You could just have it in your bedroom. It was instantaneous; the distance between the craving and the fulfillment of the craving was just one click away. There was infinite variety, so you didn't have to pick and choose. You could just keep going until you found what you liked. There were infinite niches, and people discovered that they were into all kinds of weird stuff because now there was a long tail of content, and it was free.
Whereas most porn at the time was paid, there was somebody who was called the "King of Porn." He was the guy who was sitting on the iron throne at the time, the CEO of Vivid Entertainment. What was Vivid Entertainment? They were like a Hollywood studio. They were making porn, but they were making it in the Hollywood way, where there was an actress, a set, cameramen, and people would buy DVDs.
So, Vivid at the time was the king. This guy was known as the King of Porn. He was written up in all these articles. In fact, the year that he was written up in all these articles is the same year these new disruptive websites came out. Revenue starts to fall; it falls 50%, then 80%, and it just basically goes down the drain. | |
Sam Parr | how big was it | |
Sam Parr | It was doing tens of millions in revenue. Okay, but there were many studios like this. They were the biggest one, but just like in Hollywood, there are many studios.
Alright, so I don't know if you remember, Google bought YouTube because YouTube was facing a huge lawsuit from Viacom. These are like parallel stories. YouTube was also flooded with pirate content, and because of that, they were getting sued like crazy. Worried that they would go out of business, they sold to Google for about $1.5 billion.
At the same time, Vivid copied that playbook. They looked at what Viacom was doing to YouTube and started suing the crap out of all the websites. So, the first owner of the throne, Vivid, goes down. Then the second owner of the throne, which included sites like Redtube, they start getting hammered as well because they're getting sued.
Alright, so who's the third one to pick up the baton? Where does Pornhub come into this?
At the time, there were three college students in Canada who realized that there was a lot of traffic to these websites. They met, of all things, at a competitive foosball tournament. The guy who was the best foosball player, aka the chief nerd, happened to be the best programmer of the bunch. He created a live streaming video website to stream their foosball competitions.
There wasn't much of an audience for the foosball competitions, but as he was building all this video tech, he thought, "Hey, I think we could do the same thing for porn." That was the intention: porn.
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Sam Parr | or was the intention something else and porn users use it use it most | |
Sam Parr | So, these guys made the link site. That site I talked about, Jug World, that's their site. But they made like a hundred of these. They created about a hundred directory sites, just links to other websites.
Then they saw the YouTube thing and picked up this guy, Matt. I think his name is Matthew Kieser or something. Kieser is the guy who built the video streaming site, and he's the best programmer. So, he's like, "I think I can make a YouTube for this stuff." Instead of having these directories where we send the traffic away, we could just keep the traffic.
At the time, they had already kind of started to discover things. They were like, "Oh, people like this, people like that." They were just creating other directories. Eventually, they looked at Vivint, who was the king at the time, and they were like, "We should make our own Vivint."
So, in the same office, they created Pornhub, the website that was going to host all this stuff, and they created a company called Brazzers, which is a... | |
Sam Parr | oh yeah | |
Sam Parr | producer of content so they created a content producer and they created the platform that netflix | |
Sam Parr | has making their own shows | |
Sam Parr | Exactly. Or, like, you know, FTX had this sister company that, by the way, nobody knew these companies were linked. So, everybody thought these were two not only unlinked companies; they thought they were enemies.
At the time, all of the studios hated the platforms that were giving away the content for free. People didn't know that one of the biggest studios was actually the owner of one of the biggest websites at the time.
In the same way that there was FTX and Alameda living in the same house, kind of sharing funds, Brazzers and Pornhub were doing the same thing. People just didn't know. In fact, the guy came out and was quoted, "That would make no sense. Why would we do that? That would be 100% against our core interest as Brazzers to do that. We hate the platforms." Meanwhile, he was also the owner.
So, these guys start this thing, and it takes off like a rocket. They were like, "Dude, we have no idea what we fell into." They were sleeping in the office, working every single day, every weekend. They couldn't hire enough. This was now like 2007 or 2008, I think.
So, they weren't the first mover, but they ended up becoming the biggest mover. And here's why: they basically scaled this thing better than anyone else could. One of the keys was they had browsers. They had their own content that was not pirated. Well, it was pirated, but they owned it, so they didn't care that they could use it on the network. Even when other stuff got taken down, they still had more content than other people. | |
Sam Parr | Alright everyone, a quick break to tell you about HubSpot. This one's really easy for me to talk about because I'm going to show you a real-life example.
I’ve got this company called Hampton, [joinhampton.com](http://joinhampton.com). It's a community for founders doing between $2,000,000 all the way up to $250,000,000 a year in revenue. One of the ways that we've grown is by creating these cool surveys.
We have a lot of founders who have high net worth, and we ask them all types of questions that people typically are embarrassed to ask but that provide a lot of value. For example, we ask questions like how much the founders pay themselves each month, how much money they're spending each month, what their payroll looks like, and whether they're optimistic about the next year in their business.
These are all questions that people are afraid to ask, but we ask them anyway, and they tell us in this anonymous survey.
What we did was create a landing page using HubSpot's landing page tool. It basically has a landing page that says, "Here are all the questions we asked. Give us your email if you want to access it." I shared this page on Twitter, and we were able to get thousands of people who gave us their email and told us they wanted this survey.
I could see where they came from—social media, Twitter, LinkedIn, basically everywhere else that they could possibly come from. I'm able to track all of that. Then, I can see over the next handful of weeks how many of those people actually signed up and became members of Hampton. In other words, I can see how much revenue came from this survey and how much revenue came from each traffic source.
The best part is that I can see how much revenue came from it, and a lot of times it takes a ton of work to make that happen. HubSpot made that super, super easy.
If you're interested in doing this, you could check it out at HubSpot.com. The link's in the description, and I'll also put the link to the survey that I did so you can actually see the landing page and how it works.
I'm just going to do that call to action now—it's free! Check it out in the description.
Alright, now back to MFM.
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Sam Parr | And so they scaled up. They went from basically just three friends to like 80 people, then 150 people, and eventually 250 people. They were hiring friends and family, and they were like, "Dude, where do we have an office?" They were like, "No, no, no." They started buying houses next to each other and just created a neighborhood. They were all working out of that one area.
**Bootstrapped.** No investors, no nothing.
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Sam Parr | So, just growing because of word-of-mouth traffic. Obviously, people love their product and they're just coming back over and over again.
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Sam Parr | and the key is that this guy kizer was an seo savant he came out later and he goes we were the number one rank for porn and sex on Google he's like do you know how hard how competitive that is he's like I he's like that's what I did I pulled that off I became the number 1 search that's how we defeated all of the other things and then we had content that wasn't getting taken down so they grow it to 250 they make one of the guys' brothers the ceo they're like you're the ceo you have some business experience you do this so that guy starts doing a roll up like a private equity roll up so he starts buying up all the other ones who are afraid of getting sued and so he's buying them up for cheap and he's just consolidating power and just creating one big mega behemoth because then he could fight whoever was gonna sue them because now they owned all the traffic so they had something you know they had something to to to fight with and so he starts building this thing up and by the way there's this whole like industry is so funny because you think of it as a sketchy thing but like one of the sites for example that they bought it was called homegrown it will start as a a vhs tape exchange for like swinger couples right like the most like fringe of the fringe thing but this kid who's a stanford mba student buys it his mom helps him raise the money and they do a they do like a leveraged buyout of this thing like it was actually kinda sophisticated under the hood even though on the surface it looked like you know do these you know really sketchy gray area things but it's like stanford mbas are buying this stuff so anyways fast forward to 2009 they've scaled it to 250 employees they're making 1,000,000 and 1,000,000 of dollars right they're making more money than they ever knew what to do with but they're getting paranoid because they know you're sitting on the on the throne that people are gonna come for you and so they start seeing some bad stuff right the government seizes $9,000,000 out of one of their bank accounts just just takes it and they're like shit what do we do they start trying to move money around they hire security 247 they're followed by you know black tinted suvs the kieser guy the seo guy he just quits he's like I I can't take this anymore it's too stressful they're like dude you're walking away from so much money he's like I don't care I can't handle this so they finally just decide look it's too stressful we can't do this anymore let's cash out now there's not a lot of buyers for this thing right because institutional investors can't really buy this type of asset and now it's big | |
Sam Parr | how big | |
Sam Parr | It was worth over **$100,000,000**. So, they sold it to that guy you were referring to, this guy **Fabian Tillman**. They sold it to him for **$140,000,000**.
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Sam Parr | well what was what was his background | |
Sam Parr | fabian's background was I think he had also he was already in this space so what he did was this guy was like a programming genius so at 17 he basically start he created a website that was just for internet traffic so it's like alexa right like internet traffic sites just statistics sorry so he's just a nerd he loves the internet so he creates a site that tracks successful internet companies which which ones are growing the fastest however you know how I started this by reading you like what's the 6th most popular website in in the united states he sees that the most popular websites are all porn websites and so he's like what if I create software for them so he goes to them he's like what do you need and they're like well you know one of the hard things is we we make money off of affiliates but our affiliate tracking sucks so he builds an affiliate tracking tool that becomes the number one most used piece of code for affiliate tracking on the internet and it's being used by these porn websites and he builds that company up he's super young he's like you know 20 years old or something he sells it he's super rich now he's got 100 of 1,000,000 of dollars and so he then goes and he buys pornhub for a $140,000,000 and then he just like grows it like crazy so he and I think in I think in like 3 to 6 months he doubled the profits of the business because he's this guy's just a better better operator he knew how to monetize better and he also knew how to like to to solve the problems around the content licensing so he spent $1,000,000 buying content licensing rights so that they don't get sued anymore he changes the name he launches like a pr campaign around safe sex and he starts like you know getting in with politicians and all this stuff right and he's doing and he tries to do other stuff too he he buys celebs.com and tries to create a tmz he tries to create like a bigger media empire but nothing nothing can keep up with the growth of the core asset and so he's 30 you know he he ends up 32 years old this you know the company has 500 employees and he's the biggest porn tycoon on the planet now and this guy has sort of made it however there is one problem and this problem is that like I said this great power corrupts and people puts a target on his back people start coming after | |
Sam Parr | He's hard to find too, right? If you look for photos of this guy on Google, you actually can't see that many pictures of him.
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Sam Parr | Well, he did a couple of interviews at tech conferences later when they started to try to branch out.
This is similar to how OnlyFans has tried to branch out and hire musicians, saying, "Hey, show behind-the-scenes content of your music process" or whatever. They're trying to branch out, and he tried to do the same thing.
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Sam Parr | hard when your name is pornhub though | |
Sam Parr | Well, he created other websites, right? So he created separate websites altogether that he wanted to use the same team and cash to start. But crazy stuff is happening, right?
On one hand, he's figuring out how to monetize it way better. He's like, "Oh..." and then, by the way, he's hiring data scientists. The data scientists are like, "Sir, we found that the best way to get a free user to pay for content is a video that is 2 minutes and 59 seconds long. That is the point where a man is most committed and willing to impulsively buy something. If we try to put a paywall before that or after that, it's not going to work. 2 minutes and 59 seconds is what we just found to be the optimal time to increase revenue." And they do! They increase revenue a lot.
Oh, there's one other thing I didn't mention. Along the way, people start to get curious. They're like, "Okay, he's building this huge empire. He's rolling up all these sites, buying more and more sites. How much cash does this guy have? How did he generate so much cash?"
What later comes out is that he got a $362,000,000 loan from unknown secret investors. It turns out that basically, there were two guys who went to all the big banks, and the big banks were like, "Look, we can't do this. We can't lend the money." So he goes to private lenders. It turns out he raised money from 125 secret lenders. Their names have not been revealed, except for one group.
Their names have been revealed; it was a bunch of ex-bankers from, I don't know if it was JPMorgan or Morgan Stanley or whatever. Some big bank. Two bankers from there spun out and created their own lending firm specifically to lend just to this one play. They're like, "This is going to be so lucrative that we have to just leave our jobs, quit our jobs, raise money, and just lend it to this guy."
And they've lent it at a 20% interest rate. So even though he was growing and making all his money, he had huge monthly commitments because he raised $360,000,000 at 20% interest. | |
Sam Parr | His debt payment, or his interest payment, is $80 million or $100 million a year.
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Sam Parr | 60,000,000 a year exactly. And they're also under attack. Like, the CEO owns a $16,000,000 house, and it gets burned down by arsonists.
Then, Bill Ackman comes into the fray. Do you want to know how Bill Ackman comes into this story?
So, in the Game of Thrones, Bill Ackman comes in from Westeros. He's reading an article one day—this is the story. I don't know how true this is, but the story is he's reading an article in the New York Times about a teenage girl who sent nude photos to her boyfriend. The boyfriend then leaked it onto one of these websites. Ackman thinks, "That's so wrong!" She couldn't get it taken down, and she felt so bullied.
He's got daughters, and he's like, "This is terrible." So, you know how right now he's on a crusade to take down Harvard and Business Insider? He goes on a crusade to take down Pornhub.
He tries to find them, and he's like, "Dude, this is like some offshore company by this German single owner. I can't pressure him; he's not a public stock. I can't become an activist. What can I do?"
So, he thinks about it. At first, he's stumped, then he's like, "Wait a minute! What if I, you know, when the U.S. government sanctions Russia, what if I sanction Pornhub by cutting off their flow of money?"
So, he's like, "Hey, they need payment processors." What Bill Ackman does is he goes and he immediately texts the CEO of Visa. He sends him the article and says, "Your company is enabling this. These guys are making money off of this. You better do something about this."
The CEO of Visa is like, "Dude, I don't want any trouble from Bill Ackman." He agrees that it's wrong. It's not a huge portion of Visa's revenue, and he texts him back, "I'm on it."
Within 5 minutes, he's on it. One day later, Visa cuts off Pornhub. So does Mastercard. They lose their ability to actually process payments until they later had to change all their policies. They now verify everybody with their license and stuff in order to...
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Sam Parr | He's got this bill. Ackman has this old tweet. He goes, "If you've been victimized by Pornhub or any of their affiliates, you may be eligible for a large amount of compensation. I encourage you to email this person who consults 70+ victims who can help you pursue your claim."
So he puts all his weight behind this thing. This is pre-Israel, pre-Harvard, pre-business, etc. Yeah, Pornhub is who he's going after.
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Sam Parr | Hell hath no fury like Bill Ackman's scorned, right? You know, he goes after you.
So the crazy part is, the story doesn't end there. You and I thought that Pornhub was owned by a company called MindGeek, and MindGeek is run by this guy, Fabian Tillman. However, a few years ago, or sorry, 3 or 4 years into owning it, he's grown the company like crazy. However, he gets in trouble for tax fraud or tax evasion or something like that. | |
Sam Parr | he and he's in germany | |
Sam Parr | I don't know all the details around the tax situation, but I know that he gets in trouble with taxes. He's forced to sell in a fire sale, and he sells it for **$77,000,000**.
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Sam Parr | oh wow | |
Sam Parr | So, the value has gone down somehow. I mean, the 6th most trafficked website in America sells for $77,000,000. That's how much Morning Brew sold for. Like, come on, do this!
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Sam Parr | This is the only time when I'm allowed to go on Pornhub on my work computer, so I can look at their stats. According to SimilarWeb, Pornhub gets **2,000,000,000 visits** a month, with an average visit duration of **10 minutes**, which is a lot, and **10 pages per visit**. They just get a ton of traffic, so it's just huge.
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Sam Parr | And by the way, let me tell you, this is a two-year-old adventure story. Aren't you curious what happened to those original founders who sold it for $140,000,000? What are they doing now?
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Sam Parr | I'm I'm curious about them and I'm curious about who who bought pornhub to for $77,000,000 | |
Sam Parr | So, which one do you want? Do you want to know about the shadowy businessman who bought it, or do you want to know about the original founders? Choose your own adventure.
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Sam Parr | let's I'm gonna go in both but I'm gonna go with the original for for now | |
Sam Parr | so if you go look at their linkedins now which I get name you you spell | |
Sam Parr | spell one of them | |
Sam Parr | Guy's names... I mean, so one is Stefan Manos, another one is Usam Yousef, and then there's the guy Kizer. All of them, if you go to their LinkedIn profiles now, there is no mention of any of this. They're like, "Yeah, it's all about their philanthropy," it's whatever.
But here's the interesting thing. So the guy Yousef, he sells, and he's like, "Okay, I just want to get away from all this. That was too stressful, too sketchy. It became way bigger than we started. We didn't intend to do that; it just sort of... one thing led to another. I need to reset."
In his reset year, he's like, "Well, what do I do? How do I invest all this money I have?" So he starts reading. He reads 150 books about investing and he comes away a Warren Buffett disciple. He's like, "You know what? I'm going to go into value investing."
He creates a Berkshire Hathaway for internet companies called Valcep. Valcep is basically like Constellation Software; they're just buying up profitable, cash-flowing internet companies. | |
Sam Parr | dude and they're killing it | |
Sam Parr | They're killing it! Now, it's a $1,000,000,000 company. They have over $100,000,000 in EBITDA every year, just from acquiring about 50 companies or so. They have around $500,000,000 in revenues and a net profit margin of 20 to 30%.
So, they created this thing called the Valseft Group. They said, "Alright, we're going to..." First, they started buying up other content websites because that's what they know. Then, they began studying Constellation Software, which is the same thing that Andrew Wilkinson and several other people have done. Constellation is one of the OGs in this space.
He mentioned that he read the stuff Warren Buffett was doing on the stock market, but this private software company is even better. He said, "It's 10 times better because there are only about 30,000 of these companies, and there's no competition to buy them."
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Sam Parr | what year what year is this | |
Sam Parr | 2016, wow! So, he starts copying their playbook and he's like, "Look, this market is opaque. It's inefficient. I think you could deploy a high rate of capital and get economics similar to what, you know, the moguls of previous times did."
He's like Murdoch, you know? He rolled up cable and newspapers back in the fifties and sixties. He's like, "That's what I think I'm going to be able to do with these profitable software companies."
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Sam Parr | Example of the companies are Neavatar, a cloud-based car rental software company designed to automate a bunch of the stuff.
Or it's like a construction software business—just things that you don't even know exist. But like this one has been around, it's called Mal Mac Practice. Since 2004, it started in Lincoln, Nebraska, and it's created best-in-class software for chiropractors.
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Sam Parr | Exactly. So, the first company they bought in 2016 is something that sells software to small hotels. Then, the next year, they bought 3. The following year, they bought 8. Now, they're buying 20 to 25 a year. They're just buying small companies that are similar to what Constellation does. I think Constellation bought like thousands of companies during the last few years. | |
Sam Parr | I think the average size constellation software business is $3,000,000 in revenue isn't it | |
Sam Parr | Exactly, exactly. I don't know if it's revenue or EBITDA, but it's small. They're not like... it's not huge PE deals. It's the same thing; these guys are looking for companies that are $5 to $10 million in revenue.
So they go and they're just stunning constellation. They're like, "It's great." Basically, you buy them, and you need them to run on their own individually so that it doesn't add more bloat to headquarters.
They're just buying stuff all over Europe. And he's like, "Right now, my problem is I'm trying to decide between a great opportunity and a good opportunity," which is just a quick look... great.
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Sam Parr | did he partner and I think he partnered with some of the other the other founders right | |
Sam Parr | Yeah, it was 2... I think 2 or 3 of them that I know. It was the 2 of them: Yousef and the Manos. One, I don't know what the Kizer guy does now.
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Sam Parr | They don't even mention Pornhub. So if you go to Valsoft.com, our history, that word's not even mentioned anywhere.
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Sam Parr | yeah there's parts of my history I don't mention either right like hey we all we get it these guys are planning to go ipo which is pretty pretty crazy so that's where these guys went which is insane now what happened to the site who bought it so the story that came out was that the you know who's the next person on the throne they said that actually the employees bought it out for 77,000,000 like the 2 executives bought it out but that didn't smell quite right where do these ex where do these employees get $77,000,000 to buy this right like how much were these employees making and it turns out that there was actually somebody who was the money behind it that didn't want their name associated with it and it was this guy I don't even know how you say his name it's like the word bernard but it's missing some letters it's just bernd bergamare and he's an austrian businessman which is just already sounds fucking like sick and he's so now he he owns the majority of this he he owns the majority of this he worked in kind of like finance for a long time goldman sachs he worked at hong kong and london and blah blah blah he bought redtube in 2013 he sold it to mindgeek originally and then now he bought the whole company back and so he is the principal owner of this thing and nobody saw it and most people kinda thought it's a kind of a dead asset because when you look at the reported financials ornam makes almost no profit and they're like jeez how are these guys making 100 of 1,000,000 of dollars in revenue with no profit one of the reasons why is this guy basically lends money to the company and takes out 2,000,000 a month in just debt payments himself + they shift revenue around all these subsidiaries so there's all these shell companies so you don't actually they they've completely obfuscated how much money this this entity makes and so that's who currently owns it but even he's going down now he's getting a divorce his wife had came out and is like she wants him to cut ties with the company blah blah blah and I think it's about to exchange hands again because now a private equity group bought it and do you wanna know the name of the private equity group that bought pornhub yes I do ethical capital partners wow | |
Sam Parr | do you | |
Sam Parr | Wanna know how many companies they own? One. This is the only one they formed just to buy this. They named it "Ethical Capital Partners." I mean, that's the "Subway: Eat Fresh" of private equity.
So these guys are now the owners of this thing, and who knows where it'll go next?
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Sam Parr | First of all, great story! That was a great story. I was enthralled the whole time.
Second, look up this guy, Bernard. He has a really weird spelling. There is only one photo of him that I could find, and he's smoking a cigarette.
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Sam Parr | badass photo | |
Sam Parr | Yeah, he’s just smoking a cigarette. It looks like if he told me that he was part of the mob, I would believe it.
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Sam Parr | He looks like either a mob guy or like a soccer coach, you know, the Manchester United coach after a loss. It's like one of the two.
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Sam Parr | Yeah, he’s just ripping a cigarette in this photo, and he worked at Goldman. So, he’s also an acquisitions guy; like, he’s a deal maker. That’s what he does.
This is insane. First of all, I would never trade places with any of these people. Maybe the original owners—that is kind of cool—but the last two and the new owner? I would not trade places with any of them for any amount of money. I would not want to go through this.
If you Google this guy’s name, there are pictures of his wife and them fighting over this stuff. This sounds miserable. Can you imagine being married to someone who runs this company?
What I want to know is, what is it like to work there? How do you stay professional and try to be objective about certain things? Like, you know when you’re talking about Shepherd or one of your companies and you’re like, “Hey, this SKU is doing a little bit better. Maybe we should try it in red and blue.” You know, we have black; let’s just do it in red and blue as well.
What are the conversations like at Pornhub or MindGeek when they’re talking about, “Oh, this category is doing well. Let’s explore that one a little bit further.” Do you know what I mean?
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Sam Parr | I mean, do right? It's the Chuck E. Cheese tokens thing. So, like, if you ever just had to take cash out of your wallet and keep putting it into Chuck E. Cheese machines, you'd be like, "What am I doing? This is terrible."
But what they do is, when you walk in, they exchange money for these fake tokens. Then they rename everything, and it feels like it's all, you know, fake. It's just this... it's like abstracted away.
That's what happens because I felt this even when we were at Twitch. Twitch is a lot more reputable than this, obviously, but at the end of the day, we were in these meetings that felt like life or death, high stakes. Everything is on the line, like the world is gonna end. And I'm like, "This is like 21-year-olds playing video games in their bedroom. Who cares? None of this matters."
And you hire people from Harvard and MIT, like the brightest of the bright, and they're optimizing, like, you know, the mid-roll ad pop-up of some stupid energy drink in the middle of this stupid video game stream. But none of it still feels stupid once you're in there because it becomes abstracted away.
You're playing with the data, the numbers, and the revenue. You come up with all these terms for community and content and whatever, and I feel like nobody looks at the fact that we're all just making hot dogs anymore. You lose sense of it.
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Sam Parr | I... my wife worked at Facebook after college. She went to this Ivy League school; she's a smart woman. She had all these amazing job offers, whatever, and she starts working at Facebook.
I'm like, "Oh, Sarah, what are you working on?" She started explaining to me in a really complex way. I'm like, "Oh, you're just trying to come up with... you guys just created like a little sticker emoji that you could put on photos so more people share photos."
It was like looking down, and it was like, "Yeah, yeah, that's it." You know what I mean? You go to that moment where you think of Facebook as this amazing thing, which it is, but then you start talking to individual people, and it's like, "Oh, you created a thing that when I stick my tongue out, the cartoon's tongue goes out."
That's cool! In reality, you're doing it just to get people addicted more to posting and sharing stuff. Yeah, you know, that's alright.
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Sam Parr | It happens when we were at Camp MFM, and we're talking to Mr. Beast's team. He's giving us a tour of the facilities, and our group is like billionaires and philanthropists.
We're walking through, and we're like, "Wow, this is incredible! These people are geniuses." We ask, "How do you get people to click the thumbnail?" They're like, "You know, we increase brightness and saturation by 14%," and they show us how many thumbnail tests they did. We're like, "Ah, incredible work!"
We're so wrapped up in it, and it all feels so real. Then you come home, and you click on his video, and it'll be like "Train vs. Pit." It's like, "This train is gonna drive into this hole, or is it gonna jump over? We don't know!"
It's like, "Oh wait, dude, I had a friend named Ty who used to do this stuff in his backyard." Ty would lock himself in a room for 7 days. I actually know an idiot named Jake who did that without YouTube. He just did that, and we were like, "Dude, is Jake still in his room?" And he's like, "Yeah, that's what he's doing."
But when you're in it, you can get in this reality distortion field where you feel like you're doing God's work out there. And that's what happens in all these companies, dude.
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Sam Parr | It is so cool! I remember Elon Musk gave this talk, and he said, "You know, you're doing all these amazing things. You're sending people to Mars, you're building cars, saving the planet, whatever."
And he's like, "Yeah, but it's also cool just to make a game that entertains people. That's cool too."
So I don't want to discount this stuff, but it is fun to put perspective on this and be...
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Sam Parr | Like, what are the priorities around this? Seriously, it's cool to do your best. It's cool to try to win a game.
How many people are going to watch the Super Bowl next Sunday? It's, you know, a bunch of guys chasing around a ball with an arbitrary set of rules.
Right? If you look at it, it's cool to be into it. It's cool to be great at it. But let's also not take ourselves too seriously.
Let's remember, like, you know what this is: it's a game, or it's something fun, or it's something lighthearted.
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Sam Parr | I've met three guys who run porn sites. Some are popular, and some aren't. One of them is very popular.
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Sam Parr | Dude, imagine running a not-so-popular porn site. All of the downsides with none of the upsides.
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Sam Parr | you love that joke that you just made | |
Sam Parr | Whoever is your friend who's running the unpopular porn site, imagine how bad you have to be in...
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Sam Parr | execution it's | |
Sam Parr | like if you can't sell boobies you can't sell anything dude | |
Sam Parr | Well, it did. This guy launched one, and then within 3 or 4 days, it was doing like 80,000 or 100,000 views a day. But he was like, "Yeah, we don't make any money because the ads are horrible. There's no way to make money on this stuff."
So they had traffic, and all three of those guys I knew who did it were all borderline autistic, probably on the more autistic part of that line. I remember thinking and talking to them, and I was like, "Yeah, but doesn't this make you feel weird? This, this, and this?"
And they were like, "Yeah, but the spreadsheet said this number, and tomorrow it's going to say this bigger number." So all I'm trying to do is look at that spreadsheet and try to make that number bigger. It just so happens that it's on this website. They were all pretty black and white about that, you know what I mean?
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Sam Parr | Yeah, exactly. Once you get in, you start operating.
By the way, I remember reading once about Max Levchin, who is one of the most brilliant people in Silicon Valley. This guy is one of the co-founders of PayPal, and without Max, there is no PayPal. You could probably say that for a couple of people, but specifically, anybody at PayPal will tell you that Max's technical brilliance in fighting the fraudsters is unmatched.
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Sam Parr | fraud yeah | |
Sam Parr | Kept PayPal alive when any other money transmitting service just died because the fraudsters had too much to gain and they were too sophisticated. As a young company, it's really hard to defend against it. Max went to war with them and actually fended them off enough where they succeeded.
So, brilliant programmer, right? Chess master, brilliant programmer, blah blah blah. He creates PayPal, this monumental thing. His next act was a company called Slide.
Slide basically made virtual pets for MySpace. It was like, "What?" You know, like on your MySpace profile or your Facebook profile, we're going to make little apps so you can engage with your friends and interact.
It's like, "Interact how?" It's like, "Well, we just invented this app called Bitchslap where you could bitch slap any one person a day on your Facebook." It's like, "What?" Yeah, but only one. And then it got even lamer.
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Sam Parr | didn't it it like became an ad tech company | |
Sam Parr | Well, how do you monetize, right? Like, with all these things, how do you monetize his ads?
So, they were creating slideshows and music video tools. But anyway, there was some stuff to go on your MySpace and Facebook profiles. They go, "You know, Max, you built Slide. It got really popular, then the platforms kind of shut down some of the capabilities."
I think they ended up selling to Google for some small amount. And they were like, "Max, what'd you learn from Slide?"
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Sam Parr | small for him it was still a multi $100,000,000 exit | |
Sam Parr | But I think they had raised a lot of money, so I don't think that anybody really made too much.
I'll never forget this. I read this quote, and I realized, "Oh shit, this describes my life." I read this like 15 years ago, and I've still never forgotten it.
They go, "What did you learn from Slide?" And he said, "What I realized is you gotta be really careful what projects you pick because anything can be optimized to infinity."
And it's like, "What do you mean?" He goes, "You know, we picked that we were gonna do these widgets on top of profiles. And guess what? The smartest people in the world can spend every moment of every day optimizing that to make it more engaging, more viral, more addictive, and higher monetization."
And that's what we did. We spent years of our lives doing that. I think that was like his big takeaway. He didn't say it, but it's like the implied thing: "Kinda like what a waste." Yeah, be careful because every knob can get optimized to infinity.
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Sam Parr | he he became like the best pogo stick player in the world | |
Sam Parr | Yeah, like, I’ve felt this many times in my life, and I don’t really even know how to deal with it, to be honest. Because when you have the realization, you’re like, “Shit, should I just stop?” I don’t know because I don’t want to stop. This is like my job; this is a successful business.
With my e-commerce store, I feel this, like, you know, you change the color of this and then you run this A/B test. You do... it’s like, “Dude, what are we doing? Is this what we should be doing with our time, our life, and our creative energy?” I do have that kind of existential crisis, you know, every few years. Just think about this quote...
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Sam Parr | Let me be your therapist for a minute, as well as anyone else's in the situation. Your product doesn't have to change the world. Your product, as a CEO or owner, could be: "I create jobs for wonderful people, and I give them a great place to work."
Most people just want a 9 to 5 job. They want to play softball on the weekends, ensure they have good health insurance, and see their kids raised healthy. You don't need a life-changing thing all the time to have a badass product.
I don't think it's fair to compare all these products to Teslas or other existential crisis things. Just having a piece of clothing that you can give to someone or that makes you feel good about yourself, or a game just to play, is valuable.
I mean, we just have a podcast that you could say, "Oh, we inspire people." Sometimes we just joke around, and it's funny. That is also awesome. It's not right to say this is better than that; it's so stupid.
We can have all those things. I get inspired listening to music, and there’s a lot of music that's just silly, dumb stuff. Then there’s some music that actually changes me. There are movies that change me, and then there are stupid Vine skits. It's all in the same category, and that's okay.
My product could be creating a workplace that people love coming to, and I inspire them. Or it could be that I just created a future for my daughter. You know what I mean? So, I don't think that your product necessarily has to be the thing you're selling, but the thing you're...
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Sam Parr | Building... I'm okay. I feel better, thank you. That was good. I feel better now. I'm creating jobs out here, dude. | |
Sam Parr | no that that is the truth or like you know what I mean or you're providing for your family | |
Sam Parr | office with the number jobs I've created this is great | |
Sam Parr | Yes, we have created literally half a dozen jobs this last quarter.
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Sam Parr | I might have to become the governor of the Philippines because I've created all my jobs in the Philippines. But that's alright.
Can I just show you one thing off this list though? I had this list pulled up of the internet sites. Dude, look at this list! Just tell me the first thing that stands out to you, and I bet you it's the same thing that stands out to me.
I'm looking at the list of the 20 most popular, most visited, most used websites in the United States.
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Sam Parr | well the first thing but this is not what you're referring to duckduckgo is number 7 | |
Sam Parr | that's the same referring to dude that's the same | |
Sam Parr | what you're referring to duckduckgo | |
Sam Parr | what is it's more popular than yahoo and wikipedia and twitter | |
Sam Parr | So here's the background on DuckDuckGo. DuckDuckGo was started probably 20 years ago, I think. I mean, or maybe more, but it's not new. It was started by this guy named Gabe. I think Gabe was a mildly successful entrepreneur, successful by any means, but like among Silicon Valley, it was all like a base hit.
I think he wrote this book called *Traction* with Justin Mayer, our friend. Then he had this whole premise of privacy search, where he said privacy is going to be important to people. We brought this up on the pod in the very first 50 episodes. We're like, "This is so cool!"
Because what they used to do is duck.go.com/likestats. You could see all their web traffic, and it was small at first. It's basically Google, but for some, it's Google, but somehow they don't show you targeted ads. So I don't actually know how they make money or what the promise is entirely.
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Sam Parr | Do you know? It's just ads that are targeted. I think it's ads that are either not targeted or it's ads that are targeted only on what you search, like the term you just searched for, but nothing to do with you as a person.
So they're not collecting information on you and hyper-personalizing it to you. It's just, "Here's an ad because you're searching," or "Here's an ad about, you know, you're searching for a car, here's a car ad." But we don't have to be tracking information on Sam, you know?
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Sam Parr | And we talked about these guys a while ago because it's kind of weird. This is a significantly less good Google, or at least that's what it appeared to be. But we're like, their traffic's growing like crazy. What the hell is going on?
Now, apparently, they're huge. I didn't realize they were this big. I knew the trajectory was really, really good, but I had no idea that they'd be the 5th.
So, it started in 2008, by the way.
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Sam Parr | I am blown away by this. I might have to go read that damn book then. Which book? "Traction." This is real traction. Okay, I mean, I believe you. This is crazy.
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Sam Parr | Yeah, it is pretty wild. I've been interested in DuckDuckGo, but I never fully got behind it because I thought it was just an inferior Google. However, this is amazing!
So, they say DuckDuckGo is an independent privacy company for anyone who's tired of being tracked online and wants an easy solution. Actually, recently they raised $100,000,000 in funding, or maybe $200,000,000, but it was over $100,000,000. I heard that none of the money actually went to the company; it was simply early employees selling some of their stake. This means the company does not need cash; they're very profitable.
This makes sense because Google has, I don't know how many employees—around 100,000. But if you fired everyone but 50, or 100, or 200 people, it could probably work pretty great. I mean, their main thing is the most efficient, best business model of all time. So, it makes sense why DuckDuckGo is such a good business.
But this is amazing that they're what is it, number 7? Number 7 most popular website!
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Sam Parr | They went from 1% market share to now 0.63% over 10 years. | |
Sam Parr | still insane | |
Sam Parr | They're still tiny according to their own measurement of market share, which I don't know exactly how they measure. If you look at the Alexa rankings or the SEM rankings, they're getting 10 times less traffic than Google, or a little bit less than 10. But they're saying they're only 0.6% of search, so I don't know.
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Sam Parr | they had a 100,000,000,000 searches in q 3 of 2022 | |
Sam Parr | I'm going to go on the street and ask 100 people, "Do you use DuckDuckGo?" I need to know what's going on here. This is crazy.
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Sam Parr | I think we should... I'm not going to go through my other topics. I think that this... you did a wonderful job. You had me enthralled the whole time. What's the title of this one going to be like?
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Sam Parr | the flash for 94 minutes straight because that's what it felt like | |
Sam Parr | No, that's every episode. This one's going to be the story behind the 5th most popular website in the world. Alright, that's the pod.
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